Which way from now? and sausages.

I will leave the discussions around the events of last week to your weekend newspapers. On both sides on the pond we had a full week of breaking news. I can only imagine the liberal elite in Davos scratching their heads as how these events occurred in the first place. Last year their predictions were totally on the wrong side of the money.

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In the following I shall try and present the facts and after that my feelings of what should happen next. Finally I will discuss a (Worry Free) defensive share that should prosper during 2017.

Below I show a daily chart of the VectorVest Composite UK over the last year. The red and green triangles represent the most conservative Market Timing signals on VectorVest. These are named Confirmed Calls and they are perfect for the longer term investor/trader. They are the basis of the Worry Free investment strategy that I have presented here on many occasions. On the chart the price is represented by candles. In the window below the price is the VectorVest proprietary MTI indicator. The MTI is a composite indicator constructed by combining the rate of change of the price of the Composite and the breadth of the Composite as measured by the VectorVest Buy/Sell ratio.

 

Over the past few days the Composite has pulled back and found support at the highs made in October 2016. This is a normal state of affairs and although the short term trend is Down a “kiss” of the previous high is still a bullish event. Of concern is the MTI which has retreated from a value of 1.6. Over the years a MTI value of 1.6 represents a market that’s much overbought and certainly it shows that the present upwards cycle that started in November is becoming mature.

On a more bullish note the MTI has made a new high while the price has also made a new high. At the turn down from October we note that prior to the fall the price increased to a new high but the MTI made a falling high. I have marked this divergence on the chart above in red trend lines. This divergence is absent from the present situation. For this reason I feel that there is a high probability of another leg upwards where a divergence can setup in the same manner as in the period August to October 2016 and in the run up to the high in April 2016

Please note that this is supposition and that I will be trading the market and NOT the forecast. At present I am holding positions but if the trend should change as measured by the VectorVest Market Timing signals I will take profits.

To add to this picture I have included an h4 chart of the Dow Jones Industrial average cash index below. It has set up a “lost motion” trade where the market has retreated and fallen below a major low and then reversed. I was taught this setup by W D Gann and it has been the basis of my short term trading for many a long year. Richard Wyckoff named the setup a “spring” and that what I hope is going to happen. I am long from the red line on the chart. It’s a tiny position but if it works out I will add and add as the position moves north. I have no doubt that the Dow will come back and rerun the stops prior (probably many times) to any trending move. Once this accumulation is over, and if the support holds, the move should be fast and furious. A characteristic of a “spring” is a fast and strong move.

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For investors the Color Guard will tell you when it’s time to initiate new positions and to add to existing positions. At present the trends are Down/Up. When this changes to Up/Up then the ball is in and the game is on.

Cranswick plc is a supplier of food products. The Company operates through Foods segment, which is engaged in the manufacture and supply of food products to the United Kingdom grocery retailers, the food service sector and other food producers. The Company provides a range of pork, gourmet sausages, cooked meats, cooked poultry, charcuterie, hand-cured and air-dried bacon, gourmet pastry products and sandwiches through retail, food servicing and manufacturing channels. The Company’s brands include Bodega, Woodall’s, Simply Sausages and Yorkshire Baker. The Company operates from approximately 10 production facilities in the United Kingdom. The Company also owns its own pig breeding and rearing operations. It produces approximately 800 tons of gourmet sausages per week. From its sitesin Manchester, the Company manufactures and distributes foods from Europe, using packaging formats and flavor combinations.

I have been holding Cranswick for some months and the share has been sitting within the boundaries of an “ascending triangle” continuation pattern which I show in the weekly chart below. The share is now on a Buy recommendation and the market is trying to breakout at the fourth attempt. My mentor MR Gann always taught that markets will break on the fourth attempt. The Relative Safety of Cranswick is high and technically a break from the triangle should initiate a multi-year advance. It won’t be a fast ride but it should beat the pants of the averages when the move finally gets going. A perfect anchor for a conservative portfolio in this defensive food counter.

Keep your eyes peeled on the Color Guard and the VectorVest Market Timing signals. The cycle from November is becoming mature but the market can easily run further into May 2017.

David Paul

January 21^st 2017

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